At this season we wish you all the blessings for the holidays and a safe and happy New Year.

Our offices will be closed from 24th Dec and will be reopening on the 4th Jan 2010.

We hope you will be enjoying a well earned break, as will we and look forward to being of service to you in the New Year.

From all of us –

HAPPY CHRISTMAS

Common Mistakes By Self Managed Super Fund Trustees

The ATO has recently announced that it will be stepping up its compliance program for trustees of self managed superannuation funds (SMSF’s).

Accordingly trustees should check their policies and procedures to make sure they are not inadvertently in breach of the rules.

Trustees that are found to be in breach may be fined or the fund could lose its favourable tax status and be taxed at the top marginal rate.

75% of all SMSF contraventions fall into six categories.

Loans to members relatives (19%)

SMSF’s are prohibited from lending money or providing any financial assistance using the funds resources to a member or a member’s associate. For example, payment of personal expenses by the fund.

Breaches of in-house asset rules (16%)

The fund cannot acquire or hold in-house assets that are valued at more than 5% of the market value of total assets. In simple terms, an in-house asset is a loan, investment or lease arrangement with a related party. If a fund has in-house assets, a review is required on a yearly basis to determine if the assets remain below the 5% level.

Assets not in the name of the trustee (14%)

The fund’s assets cannot be held in the name of individual or corporate trustees in their own capacity, but must be in their capacity as the trustee of the fund. If the assets are not in the correct name, the fund’s assets are placed at risk as they are not identified as being owned on behalf of the fund.

Documents requested by auditor not provided (11%)

If the auditor requests a document in writing from the trustees, each trustee must ensure that the document is given to the auditor within 14 days of the request being made. This applies only to documents that are relevant to the preparation of the audit report.

Breeches of the sole purpose test (8%)

A SMSF must be maintained solely for the purpose of:

·Each member on or after retirement; or

·A member’s legal personal representative or the member’s dependents after the death of the member.

The fund is not permitted to provide any benefits to a member or their associate (eg renting a residential property owned by the fund to a member, or in having artwork owned by the fund on the member’s wall)

Unauthorised borrowings (7%)

A SMSF is generally prohibited from borrowing money or maintain an existing borrowing of money. An exception is instalment warrants, and even with these, trustees must ensure they comply with the very strict rules.

Christmas/year end parties and gifts

The year end is on the way and many employers will be planning to celebrate Christmas with their annual year end "bash". In addition, many businesses will be considering what gifts, if any, they will provide to clients and employees.

However, an important issue to consider is the possible FBT and income tax implications of providing "entertainment" to staff and clients.

Editor: If you would like some assistance in this complicated area please contact us.

One major consideration is the "less than $300" minor benefit exemption and the fact that the Tax Office now accepts that different benefits provided at (or about) the same time are not added together when applying this threshold.

This means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as each costs less than $300!

Gifts which ARE NOT entertainment – generally include:

a Christmas hamper, a bottle of whisky, wine, etc.; and

gift vouchers, a bottle of perfume, flowers, a pen set, etc.

Gifts which ARE entertainment –

generally include:

tickets to attend a theatre, live play, sporting event, movie or the like; and

a holiday airline ticket or admission ticket to an amusement centre.

Example of a party and gifts

An employer holds an external Christmas party for employees and their spouses.

The cost of food and drink per person is $250, and no other benefits are provided.

Assuming the actual method is adopted:

for employees attending with their spouse – no FBT is payable (i.e., the per head cost is less than $300); and

for employees attending alone – no FBT is payable (i.e., the per head cost is less than $300).

In either case, no tax deductions will be allowed.

Assuming the 50/50 method is adopted:

50% of the total expenditure is subject to FBT and is tax deductible.

FBT – Donations made under salary sacrifice arrangements

The FBT law has been amended to ensure that, from the 2008/09 FBT year, FBT will not apply where a salary sacrifice arrangement involves a donation to an organisation that is a deductible gift recipient (DGR).

Employees who make donations under such a salary sacrifice arrangement are not entitled to claim an income tax deduction for the donation in their own tax return.

Warning: Another tax refund email scam

The Tax Office is warning people about another bogus email circulating that claims to offer a tax refund. The email claims to be from the ATO, and shows a Tax Office email address as the sender.

The email uses the Tax Office logo and includes the words 'You are eligible to receive a tax refund of $250.50' in the subject heading and the following text (though there may be variations):

Dear Australian Taxation Office customer,

After the last annual calculation of your fiscal activity we have determined that you are eligible to receive a tax refund of $250.50 AUD.

Please submit the tax refund and allow us 3-5 business days in order to process it.

The email asks people to complete a refund form by clicking on a link in the email which directs them to a bogus Tax Office Website and asks for personal and credit card details.

The ATO advises that anyone who entered their credit card information into the bogus site should immediately report it to their credit card provider.

This information is provided as a guide only and is not intended to constitute advice whether legal or professional. You should obtain appropriate advice concerning your particular circumstances.

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